Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy

Purpose – As the major shareholder, in 2004, the Malaysian Government embarked on the transformation initiative of the Government Linked Companies (GLCs). One of the main initiatives was to enhance board effectiveness through its Green Book. Soon after, the progress performance review revealed that...

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Main Authors: Mohamad, Muslim Har Sani, Ab Rashid, Hafiz-Majdi, Ali Mohammed Shawtari, Fekri
Format: Article
Language:English
Published: Emerald 2012
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Online Access:http://irep.iium.edu.my/24890/1/Corporate_governance_and_earnings_management_in_Malaysian.pdf
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spelling my.iium.irep.248902012-11-09T04:40:34Z http://irep.iium.edu.my/24890/ Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy Mohamad, Muslim Har Sani Ab Rashid, Hafiz-Majdi Ali Mohammed Shawtari, Fekri HG4001 Financial management. Business finance. Corporation finance. Purpose – As the major shareholder, in 2004, the Malaysian Government embarked on the transformation initiative of the Government Linked Companies (GLCs). One of the main initiatives was to enhance board effectiveness through its Green Book. Soon after, the progress performance review revealed that the GLCs reported improved earnings. Such drastic performance turnarounds triggered the question as to whether earnings quality is at stake. The purpose of this paper is to examine the impact of the tightening of corporate governance mechanisms on earnings management (EM) activities of the GLCs. Design/methodology/approach – The earnings data for two periods (pre- and post-transformation) were collected and tested to determine whether the GLCs experienced any improvement of board monitoring role in curbing EM activities in the post-transformation period. Findings – The main findings show that there is an increase of EM activities in the post-transformation policy. Furthermore, the study also reveals that none of the corporate governance mechanisms has much impact on curbing activities, except for board meetings and leadership structure in the post-transformation period. The board meetings and separation of chairman and chief executive officers in the companies were shown to only have a negative impact on EM activities in the post-transformation period. Although the study has shown a positive preliminary impact from tightening the corporate governance of the GLCs, weak earnings quality might undermine the efforts to sustain such a transformation. Originality/value – The paper contributes to the limited body of literature concerning the impact of corporate governance on earnings management by examining such impact using Government Linked Companies in Malaysia after introducing the transformation programme. Emerald 2012-08-14 Article REM application/pdf en http://irep.iium.edu.my/24890/1/Corporate_governance_and_earnings_management_in_Malaysian.pdf Mohamad, Muslim Har Sani and Ab Rashid, Hafiz-Majdi and Ali Mohammed Shawtari, Fekri (2012) Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy. Asian Review of Accounting, 20 (3). pp. 241-258. ISSN 1321-7348 http://www.emeraldinsight.com/journals.htm?articleid=17054969 10.1108/13217341211263283
institution Universiti Islam Antarabangsa Malaysia
building IIUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider International Islamic University Malaysia
content_source IIUM Repository (IREP)
url_provider http://irep.iium.edu.my/
language English
topic HG4001 Financial management. Business finance. Corporation finance.
spellingShingle HG4001 Financial management. Business finance. Corporation finance.
Mohamad, Muslim Har Sani
Ab Rashid, Hafiz-Majdi
Ali Mohammed Shawtari, Fekri
Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy
description Purpose – As the major shareholder, in 2004, the Malaysian Government embarked on the transformation initiative of the Government Linked Companies (GLCs). One of the main initiatives was to enhance board effectiveness through its Green Book. Soon after, the progress performance review revealed that the GLCs reported improved earnings. Such drastic performance turnarounds triggered the question as to whether earnings quality is at stake. The purpose of this paper is to examine the impact of the tightening of corporate governance mechanisms on earnings management (EM) activities of the GLCs. Design/methodology/approach – The earnings data for two periods (pre- and post-transformation) were collected and tested to determine whether the GLCs experienced any improvement of board monitoring role in curbing EM activities in the post-transformation period. Findings – The main findings show that there is an increase of EM activities in the post-transformation policy. Furthermore, the study also reveals that none of the corporate governance mechanisms has much impact on curbing activities, except for board meetings and leadership structure in the post-transformation period. The board meetings and separation of chairman and chief executive officers in the companies were shown to only have a negative impact on EM activities in the post-transformation period. Although the study has shown a positive preliminary impact from tightening the corporate governance of the GLCs, weak earnings quality might undermine the efforts to sustain such a transformation. Originality/value – The paper contributes to the limited body of literature concerning the impact of corporate governance on earnings management by examining such impact using Government Linked Companies in Malaysia after introducing the transformation programme.
format Article
author Mohamad, Muslim Har Sani
Ab Rashid, Hafiz-Majdi
Ali Mohammed Shawtari, Fekri
author_facet Mohamad, Muslim Har Sani
Ab Rashid, Hafiz-Majdi
Ali Mohammed Shawtari, Fekri
author_sort Mohamad, Muslim Har Sani
title Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy
title_short Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy
title_full Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy
title_fullStr Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy
title_full_unstemmed Corporate governance and earnings management in Malaysian government linked companies: the impact of GLCs transformation policy
title_sort corporate governance and earnings management in malaysian government linked companies: the impact of glcs transformation policy
publisher Emerald
publishDate 2012
url http://irep.iium.edu.my/24890/1/Corporate_governance_and_earnings_management_in_Malaysian.pdf
http://irep.iium.edu.my/24890/
http://www.emeraldinsight.com/journals.htm?articleid=17054969
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score 13.211869